Union Pacific expects a strong economy to fuel freight volumes

(Reuters) - Union Pacific Corp (UNP.N), the No. 1 U.S. railroad by revenue, reported a rise in quarterly net profit on Thursday, boosted by slightly higher freight volumes and changes to U.S. tax law, but saw a worsening key measure of efficiency and profitability.

The Omaha, Nebraska-based company said its quarterly operating ratio, a closely watched measure of operating expenses as a percentage of revenue and a key metric for Wall Street, increased 0.6 points to 62.6 percent compared with the same period last year.

A lower operating ratio means more efficiency and higher profitability.

Union Pacific Chief Executive Officer Lance Fritz said in a statement accompanying the earnings release that the railroad has “room for improvement in many areas.”

Fritz is due to address investors at a conference call later Thursday.

Shares in the railroad fell 2.6 percent in light premarket trading following the results.

The railroad said fourth-quarter net income surged to $7.3 billion, or $9.25 per share, from $1.14 billion, or $1.39 per share, a year earlier.

After adjustments for one-time items, the railroad earned $1.53 per share, matching the consensus estimate of Wall Street analysts.

Freight volumes climbed 1.0 percent in the fourth quarter compared to the same quarter of 2016, driven by sharp increases in industrial products and chemicals. Those gains more than offset declines in agricultural products, automotive and coal, which dropped 5 percent, while consumer goods volume was flat compared to 2016.

Fritz also said a stronger economy and pricing would drive freight volume growth in 2018.

“We are optimistic the economy will favor a number of our market segments leading to another year of positive volume growth,” Fritz said.